Dunkin’ Brands (O:DNKN) started falling in July from a top at 56. The price action lower has been in a expanding wedge. It looked to have morphed into a bottoming consolidation as it flattened out from October to the end of the year. But at the price hit the downtrend resistance of the wedge it fell back. It found support 2 weeks ago and started back higher. Now into earnings in the morning, it has broken that falling trend resistance and held.
From the chart below you can see the RSI is in the bullish zone while the MACD is rising towards the zero line. The Bollinger Bands® had squeezed and are now opening as the price holds near the 50 day SMA.
There is support at 39.50 and 38.25 followed by 37.20. Resistance above stands at 41 and 41.75 followed by 43.35 and 44.80. The last 6 earnings reports have seen the stock move by about 4.18% on average the next day, or about $1.70. This creates an expected range of 39.15 to 42.60. Short interest is high at 17.1%.
The February Straddles suggest a larger $3.10 move by expiry with implied Volatility at 43% above the March at 34%. Open interest is tight on the put side with size at the 37.5 Strike and then smaller amounts at 40 and 42.50. On the call side open interest is is big at 40 and 42.5 with big blocks of 42.5 Calls trading on the offer side.
Trade Idea 1: Buy the February 40/42.5 Call Spread for $1.25.
Trade Idea 2: Buy the February 40/42.5/45 Call Butterfly for $0.75.
Trade Idea 3: Buy the February 40/42.5/45 Call Butterfly and sell the February 37.5 Put for 40 cents.
Trade Idea 4: Buy the February/March 42.5 Call Calendar (45 cents) and sell the February 37.5 Put for 10 cents.
Trade Idea 5: Sell the February 37.5/42.5 Strangle for a $1.15 credit.
#1, and #2 look for a move higher but not to exceed about 43.50, following options projections. #1 is profitable from anywhere above 41.25, while #2 makes money between 40.75 and 44.25. #3 uses leverage to expand that range to between 40.40 and 44.60. #4 looks for a longer term move higher ans a stall in February at the 42.50 strike. #5 is profitable between 36.35 and 43.65 at February expiry.
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